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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Is the plan on to mint the trillion dollar platinum coin?
Why Stealing a $1 Trillion Coin Isn’t Worth the Price of a Getaway Van
By Sarah Mitroff
01.10.13
6:30 AM
Set aside the national existential implications of minting a $1 trillion coin to pay America’s obligations because Congress can’t get it together to raise the debt ceiling. What if the world’s most valuable piece of metal gets stolen before we can pay our nation’s bills? Or what if presumptive Treasury Secretary Jack Lew gets thirsty on the way to stash the $1 trillion trinket in the Federal Reserve, and he deposits the wrong coin in the soda machine? The coin return never works.
We asked former director of the U.S. Mint, and the guy who helped draft the law that makes the trillion-dollar-coin possible, Philip Diehl, how this could all go down – from the actual minting of the $1 trillion platinum coin, to what could happen if a super-villain snatched the sucker. (He doesn’t think Lew would mistakenly buy a soda with it.)
While it would be worth a whole lot more, the hypothetical $1 trillion coin would be struck in a federal government-run mint the same way as any lowly penny or a $1 gold coin, Diehl says. No super-secret underground presidential or Treasury mint necessary. Let’s imagine, as some have suggested, it has the visage of Speaker of the House John Boehner on one side and $1 trillion on the other. From the mint, the shiny new coin would be shipped to the Federal Reserve.
Diehl says it would be transported in a heavily armored car bristling with gun-toting Treasury agents. Maybe that’s just a clever decoy, but either way, the coin goes on deposit and the federal government now has $1 trillion to write checks against, even if the debt ceiling isn’t raised. But if, and likely when, the debt ceiling is raised, what happens to the coin then?
Diehl says it goes back to the mint. “And to make sure it doesn’t come out of the mint illegitimately (that’s Treasury-speak for doesn’t get stolen), it would be melted down,” he says. The practical reason for that is, once the debt ceiling is raised you don’t need, nor want, for inflationary reasons, a $1 trillion coin lying around. But it’s also a hassle for the guy who has to make sure it’s safe from all the super-villains who would be plotting to boost a coin which is legal tender and could feasibly be used to buy 400,000 top-of-the-line Bugatti Veyron sports cars, at $2.5 million a pop.
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The Dramas continue to grow more and more absurd. Perhaps it can be taken as a warning that we are overdue for a Reality Check.
We’ll be fine as long as we believe our lies.
What we really need is confidence.
We’ll be fine as long as we believe our lies.
Russ, just remember. It’s not a lie if you believe it.
Can the U.S. economic expansion continue unabated in the face of growing Wall Street layoffs?
Markets
1/09/2013 @ 11:28AM
Wall Street Still Shrinking: Morgan Stanley Said To Prep Layoffs
The financial sector has shed thousands of jobs over the last five years, and that number is set to climb again based on reports Wednesday that Morgan Stanley is readying cuts to its investment bank.
Businessweek reports the firm will cut 1,600 jobs, about half of which will be in the U.S. Morgan Stanley cut around the same number of jobs in the first quarter of 2012.
While employment in the financial industry ebbs and flows in different lines of business based on factors like the broader economy and market activity, the significant downsizing in the wake of the financial crisis continues more than four years later.
Settling The Foreclosure Reviews: Winners And Losers Francine McKenna Francine McKenna Contributor
Citigroup Chief Executive Michael Corbat announced 11,000 job cuts in December, marking his first big move since taking over for Vikram Pandit in mid-October, which was right around the time UBS said it would ax 10,000 workers. Meanwhile, Bank of America is still in the midst of a major cost-cutting project dubbed “New BAC” that will ultimately reduce headcount by 30,000 employees.
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Couldn’t happen to a nicer bunch of folks.
Masters Of The Universe, acquaint yourself with SNAP card.
This.
Can the U.S. economic expansion continue unabated in the face of growing Wall Street layoffs ??
Can the U.S. “anemic” expansion continue without 2% money ??
Is the stock market bull too full of testosterone for his own good?
After month after month of stock fund net withdrawals, I find the sudden announcement that bullishness is over the top somewhat surprising. My guess is that the next little while is the period when Wall Street insiders sell overvalued shares to greater fools. The price runup occurred while most of America was sidelined with high debt loads and/or lack of employment. During the recovery, more greater fools will be qualified to take overvalued shares off the hands of Wall Street insiders.
How rising bullishness could trigger a market meltdown by June
January 10, 2013, 4:18 PM
The bullish strategists at Bank of America Merrill Lynch are anxious. The stock market has given investors too much of a good thing lately. Higher stock prices threaten to bring a surge of eager buyers into the market, driving valuations to new realms. Higher stock prices — what’s wrong with that?
Well, bulls like bearishness. It’s a contrarian thing: The market needs its wall of worry to climb.
Plenty of pessimism in a slow-growth but not no-growth economy allows stocks to rise in a relatively orderly fashion. Volatility has been low, predictability is high and stock investors essentially have the boat to themselves.
The B. of A. strategists increasingly are concerned that investors piling into the market could tip the boat, triggering a painful reversal before June.
“The probability of a major correction in risk markets … is rising particularly because investor sentiment has simply leapt higher in recent weeks,” the bank’s chief investment strategist, Michael Hartnett, wrote in a research report Thursday, carrying the charged title “Dr. Strangelove Arrives.” (That, of course, refers to “Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb,” the 1964 Stanley Kubrick film about the nuclear destruction of the world.)
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AP News
Cash pulled from stock funds 23rd straight week
By By Mark Jewell on January 02, 2013
Money was withdrawn from stock mutual funds for the 23rd consecutive week during the period ended Dec. 26 as investors watched negotiations in Washington to try to avoid the “fiscal cliff.” Bond funds continued to attract new money.
The movement of cash was in line with the conservative approach that many investors have taken since the financial crisis of 2008. Money has consistently been withdrawn from stock mutual funds and added to lower-risk bond funds.
Stocks:
Investors withdrew a net $3.64 billion from U.S. stock funds, the Investment Company Institute said in a preliminary report Wednesday. That compared with withdrawals of $5.28 billion for the week ended Dec. 19. Withdrawals have exceeded deposits each week since mid-July.
Cash was pulled out as the Standard & Poor’s 500 index fell 1.1 percent during the weeklong period ended Dec. 26. Investors were concerned by the lack of progress in Washington on negotiations to avoid the fiscal cliff, which would have meant a series of sharp government spending cuts and tax increases. Those changes had been scheduled to start Jan. 1, but Congress approved an agreement on Tuesday to avoid the cliff.
The ICI said a net $363 million was deposited during the week into funds investing primarily in foreign stocks, up from $289 million in the previous week.
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Overall, investors withdrew a net $61 million from long-term mutual funds of all types during the week, compared with net withdrawals of $4.59 billion in the previous week.
Can low mortgage rates last indefinitely? If no, what will happen when they go up?
January 11, 2013
Who’s getting cheap mortgages?
Charts of recent housing data
Mortgage rates hovering by record lows
Although mortgage rates ticked higher in the most recent weekly data, levels remain near record lows, according to Freddie Mac. The 30-year fixed-rate mortgage average rose to 3.40% in the week ending Jan. 10 from 3.34% in the prior week, compared with a record low of 3.31% that was set in November, according to the most recent weekly data. As the Federal Reserve continues to support low rates, analysts expect average 30-year mortgage rates to remain well below 4% throughout 2013.– Ruth Mantell Read more about interest rates.
Will stopped-clock inflation worries eventually prove right?
Jeffrey Lacker, a Man Who Never Changes His Mind No Matter How Often He’s Wrong
By Matthew Yglesias
Posted Wednesday, Jan. 9, 2013, at 9:35 AM ET
Binyamin Applebaum has a nice profile of Richmond Federal Reserve President Jeffrey Lacker and his perennial dissents from Federal Reserve Open Market Committee statements, but he doesn’t seem to have asked Lacker the number one question I’d have—if you keep dissenting because the Fed is picking inflationary policies, and we keep not getting the inflation you’re warning about, then shouldn’t you change your mind about something?
Apparently that’s not how Lacker sees it. Indeed, being an inflation hawk in general seems to mean never having to say you’re sorry. I saw Charles Plosser from the Philadelphia Fed talk over the weekend, and he (like Lacker) was very troubled about the possible future inflationary consequences of recent Federal Reserve initiatives. But he, too, seemed to have forgotten that he’s been warning about this for a while and it keeps not happening.
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What are people targeting as an reasonable home price metric (relative to income, rents, whatever)?
When was the last time that metric was achieved in their market, and what were interest rates at the time?
As long as our rent stays below 25% of income, I doubt we will ever feel the incentive to buy.
And once our kids all leave home, I see no reason to ever need to own.
and what were interest rates at the time ??
There is your time bomb right there…Not sure when, but I am sure…
A 1% move in interest rates will effectively be a 33% increase in the monthly cost of mortgage financing…Thats real money my friends…A 2% move will be 66%…Any move in interest rates are going to have significant impacts on a buyers ability to buy and effectively turn millions upside down on their existing 3% mortgages…At that point, do you stay and continue to make the payments because you have cheap financing even though you are upside down OR do we end up having a new wave of “Jingle-Mail”…??
We shall see…….
I think though SC Dave, there is a bit of slack before higher rates take a big enough bite out of buyers to really impact things. If the theory holds, we should have seen a big increase in prices as rates fell from 5% to 3.5%…we haven’t seen an appreciable amount of home price increases in the past few years.
Also, for the howmuchamonth buyer, a 1% increase in rates from 3% to 4% increases their payment by a LOT less than the increase in the rate might indicate.
$100k mortgage at 3% for 30 years is $421 per month
$100k mortgage at 4% for 30 years is $477 per month
A 33% increase in the cost of the borrowing, yes, but only a 13% increase in the payment.
I experienced the same thing refinancing on the way down:
A 27% decrease in the cost of debt (from 5.15% to 3.75%) only translated into a 15% decrease in my monthly payment.
The difference is the pace of principal reduction (faster in the early years with lower rates).
But I still ask the question, what home price metrics are people looking for as a “fair” level of home prices, and when were those metrics last true?
“Targeting”?????? “Reasonable”?
We know what you’re doing. And so do you.
Knock it off.
The renters are still taking the brunt of this fiscal mess as well as the savers. I went with a friend who was looking to replace a very aged car. Wow! I couldn’t believe the pricing and how little you get for the price. It is clear that those living free of a house payment are having the luxury to buy at these prices and keep a car bubble going as well as the housing bubble. So now the game is to limit housing coming to market to get stupid people back into the market, allow the rest to live mortgage free and keep auto prices inflated, allow them to eat out frequently, and shop, shop, shop. So what can renters and savers do? How long is this game going to go on?
I couldn’t believe the pricing and how little you get for the price
Last year I bought a 2012 Elantra for about $1500 over the local asking prices for 2010 Elantras.
Is the real estate market in your area experiencing a healthy rebound, as in double-digit price increases?
San Diego Real Estate Market Continues Rebound
Story Published: Jan 11, 2013 at 10:55 AM PST
Story Updated: Jan 11, 2013 at 10:55 AM PST
SAN DIEGO (CNS) - The median price of a single-family home in San Diego County last month was $418,500, an 18 percent increase over December 2011, the San Diego Association of Realtors announced Friday.
The December 2012 cost was also 3 percent above what it had been in November, according to SDAR statistics.
The organization reported that condominiums and townhomes had a median price of $253,000 last month, a 23 percent hike from December 2011.
Linda Lee, the president of the SDAR Board of Directors, said the figures are encouraging.
“The momentum carried into December, giving us a strong finish to 2012,” Lee said. “I firmly believe San Diego’s real estate market will continue to rebound in 2013.”
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The “buyer has to agree to feed the squirrels” era is back in Coastal California housing markets. Pardon me while I hurl.
Maybe this time is different, but the last time buyers found themselves needing to woo sellers with gushing letters of interest was shortly before the greatest real estate crash in the history of the U.S. And believe it or not, this was just a few short years ago (circa 2006)!
Don’t forget to lick your seller’s patootie if you expect your offer to get considered.
REAL ESTATE
January 10, 2013, 8:31 p.m. ET
Can I Buy Your House, Pretty Please?
With inventory tight and prices rising, buyers in competitive markets like Silicon Valley and Seattle are returning to a boom-era tactic: writing heartfelt letters to sellers explaining why they should win the house. Signing with a paw print.
By JOANN S. LUBLIN
Rob and Julia Israch won a fierce bidding war for a three-bedroom townhouse in Mountain View, Calif., late last year even though their $750,000 offer—while $92,000 above the asking price—was topped by 11 rivals and was several thousand dollars below the highest bid.
Jonathan Duryee emailed the seller a photo of his baby and two dogs seated around a handwritten sign that read: ‘We would love a big yard!’
A key reason: The seller, software engineer Lev Stesin, was moved by a letter in which the Israchs said they worked in the technology industry and explained how the home’s spacious layout would be perfect given the imminent arrival of their first child. Among other things, the townhouse has three bathrooms, a wood-burning fireplace and a roomy backyard.
“I felt very comfortable with these people,” said Mr. Stesin, himself the father of a toddler. “I really wanted this place to go to somebody in a similar situation.”
In an echo of the last housing boom, ardent pitch letters from eager home buyers are popping up again in hot U.S. real-estate markets like Silicon Valley, Seattle, San Diego, suburban Chicago and Washington, D.C., housing economists and real-estate brokers say.
The heartfelt missives, often accompanied by personal photos, aim to create an emotional bond that can give their writers an edge—especially in situations where multiple bidders are vying for the same house. And the reappearance of buyer pitches, also known as love letters, offers further evidence that the housing market is rebounding after a five-year slump.
Sandy S. Kuo and Syed Ahmad landed their $1.13 million ranch home in Saratoga, Calif., after writing a letter that emphasized their backgrounds and included wedding pictures.
Last year is likely to have been the first since 2006 in which home prices rose. Meanwhile, inventory is tight. There were just 2.14 million existing homes for sale at the end of October, down about 22% from a year ago to the lowest level in a decade, the National Association of Realtors estimates. Sales of existing homes in November rose 14.5% from a year earlier.
“The market has gotten so crazy that money alone doesn’t talk,” explained Glenn Kelman, chief executive of Redfin, a real-estate brokerage that operates in 19 markets. In 2012, 70% of the offers handled by Redfin agents faced competing bids. In Silicon Valley, the figure was 95%.
“It’s really a seller’s market,” said Mrs. Israch, a Facebook account manager. “This market is ridiculous.” She and her husband, a senior manager at NetSuite, N -1.59% submitted their first pitch letter while bidding for a different Mountain View townhouse last fall. They lost that one, outbid by seven of the 11 other would-be buyers.
A pitch letter worked during Sandy S. Kuo and Syed Ahmad’s third attempt to buy a home in nearby Saratoga, Calif. The Microsoftand International Business Machines managers began house hunting in earnest after their July wedding. They had written letters unsuccessfully before. This time, they went into more detail about why they felt at home in a three-bedroom ranch listed for about $1.05 million.
“We imagined how we could set up the patio for BBQs, we discussed where our future baby’s nursery could be,” their two-page letter explained.
Gary Barnett, who was selling the house on behalf of his late mother, said the letter “was very nicely done.” But with a $1.13 million bid, he said, “they also had the best offer.” The sale closed Nov. 15.
Extra effort involving a pitch letter paid off for Jonathan Duryee, a civilian management trainee for the U.S. Navy. He initially failed to snag a four-bedroom home in San Diego last October despite sending the seller a letter with four pictures of himself, his wife Nancy and their 10-month-old son. After the original buyer withdrew, he emailed the seller a new photo of his baby and two dogs around a handwritten sign that read: “We would love a big yard!”
“It really made me try to put these kids into the house,” said Scott Pursell, a veteran builder who was selling the home, which he acquired as a rental property 20 years ago. He even rejected an all-cash offer $25,000 below the Duryees’ $550,000 bid for the $549,900 dwelling.
Pitch letters prove particularly effective when they create a personal connection with longtime occupants. Last fall, Judy Blankenburg and her sister decided to sell their three-bedroom childhood residence in Los Altos, another Silicon Valley community. Their mother, who died in July, had called it home for 68 years.
“My sister and I had a huge emotional attachment to that house,” said Ms. Blankenburg, a retired chemical analyst. “We didn’t want it torn down.”
The sisters accepted a bid that came in about $200,000 above their $1.8 million asking price from a Los Altos couple keen to raise their three daughters on a quieter street.
“From the majestic trees and the lush foliage in the front and backyards to the living room with high ceiling made of knotty pine, your home is filled with charm,” the Sastry family said in their letter. They moved in Dec. 15.
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Writing 101
How to craft a perfect pitch letter
DO
* Describe specific features you like about the house and its neighborhood
* Include cute photos of your kids and pets along with their names
* Summarize financial details of the offer, such as your down payment, contingencies, expected timetable and lender’s name
* Cite professional or personal experiences that you have in common with seller
* Keep the letter concise
* Mention the length of your house hunt and the hard work that went into saving up a down payment
* Ask your real-estate agent to review your final draft
DON’T
* Use an identical template for every offer
* Over-compliment sellers, because they’ll worry they priced their homes too low
* Tell your entire life story
* Divulge your postpurchase plans for drastic renovations
* Try to justify your offer price
* Sound desperate about your need to wrap up a home purchase fast
Source: WSJ reporting and Redfin
Are commodity prices being naturally/artificially inflated?
Or are investors realizing that people have to eat and get to work, and formerly undervalued assets are recovering their true value?
I feel a rice bubble coming…
White House shoots down job creation. “This isn’t the petition response you’re looking for”
https://petitions.whitehouse.gov/petition/secure-resources-and-funding-and-begin-construction-death-star-2016/wlfKzFkN
Any thoughts on for how many years the denial stage of the housing bubble will last, now that top-down reflation efforts are clearly coming to fruition?
Now that it is out in the open that the Fed is actively propping up asset prices, here come the apologists in their defense.
Quantitative Easing: The Fed Is Right In Reflating Equities
January 10, 2013
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)
The large-scale asset purchase (LSAP) or Quantitative Easing is the balance sheet expansion tool that was unleashed by the Federal Reserve in late 2008. This tool is part of the extraordinary suite of monetary policy tools developed by the Fed to resuscitate the U.S. economy from the brink of a deflationary spiral, in a Zero Interest Rate Policy (ZIRP) regime. Ever since the first version of LSAP was unleashed in the form of QE 1.0, economists and investment professionals world-wide have questioned the efficacy of LSAP as a tool to stimulate the economy. In spite of all the drawbacks that have been brought to our attention in the recent years, I believe that the Fed has been right all along with the LSAP measures, considering Washington’s inaction in arriving at a cogent fiscal policy to tackle the crisis.
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One thing is for certain: If there is a U.S. recession in 2013, it will strike like a lightning bolt out of the blue — a veritable black swan which nobody could have seen coming.